Question

In 2010, Eklund, Inc., issued for $103 per share, 60,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2011, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?

a. $1,020,000.
b. $780,000.
c. $1,500,000.
d. $1,680,000.

Answer 1

To calculate the amount that should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock, determine the total value of the preferred stock and the market value of the common stock at the time of conversion. The calculated value is negative, indicating no additional paid-in capital from common stock.

Step-by-step explanation:

To calculate the amount that should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock, we need to determine the total value of the preferred stock and the market value of the common stock at the time of conversion.

First, calculate the total value of the preferred stock. The preferred stock was issued for $103 per share, and there were 60,000 shares. So, the total value of the preferred stock is 60,000 shares * $103 = $6,180,000.

Next, calculate the market value of the common stock. Each share of preferred stock can be converted into three shares of common stock. So, the total number of common stock shares after the conversion is 60,000 shares * 3 = 180,000 shares. The market value of the common stock at the time of conversion was $30 per share. Therefore, the market value of the common stock is 180,000 shares * $30 = $5,400,000.

To find the additional paid-in capital from common stock, subtract the total value of the preferred stock from the market value of the common stock: $5,400,000 - $6,180,000 = -$780,000.

Since the calculated value is negative, there is no additional paid-in capital from common stock as a result of the conversion.